Which of the Following Is NOT Accurate Regarding Financial Leverage

question 260

Multiple Choice

Which of the following is NOT accurate regarding financial leverage?

• A) Whenever a firm's debt increases faster than its equity, financial leverage increases.
• B) Leverage is most beneficial when EBIT is relatively high.
• C) Investors can undo the effects of the firm's capital structure by using homemade leverage.
• D) Increasing financial leverage will always increase the EPS for stockholders.
• E) The level of financial leverage that produces the highest firm value is the one most beneficial to stockholders.

---

Definitions:

Invalid

Not acceptable according to law or void of legal significance; lacking in correctness or truth.

Witnesses

Individuals who observe or are present at an event and can provide testimony or evidence about what occurred.

Escheats

A legal process through which unclaimed or abandoned property reverts to the state.

Jointly Holding

The act of two or more parties possessing or controlling property together, sharing both rights and responsibilities associated with the ownership.